Published on Wednesday, 30 November -0001 00:00
It has come to my understanding that no one has been receiving any of my legislative updates. For this, I apologize. Apparently the process for sending legislative updates has changed and I was not informed of this change. Since most updates are sent out by staff members, mainly staff members were informed of this change. Since I write and send my updates personally I was still using the old method which no longer works. Okay, excuses aside now. I would like to give a brief update concerning our state's budget and the three separate budget proposals that are floating around the legislature. First, it is important to come to an understanding where our state budget deficit currently rests. You may hear two differing numbers concerning our state deficit, either $6.4 billion or $4.5 billion. Both numbers are technically correct. The $6.4 billion deficit is our structural deficit, which is the gap between revenues and expenditure. The $4.5 billion number is the deficit after you factor in the federal recovery dollars from the American Recovery and Reinvestment Act (ARRA). It is my opinion that the more accurate and transparent number is $6.4 billion. The reason I believe this is because the federal dollars are only temporary and do not address the states structural deficit. We simply can't count on (nor would we want to) a federal stimulus bill every budget cycle. I have attached the budget forecast documents that Minnesota Management and Budget provides to the legislature. There are three separate budget proposals in the legislature. There is the Governor's budget proposal, the House proposal and the Senate proposal. Each proposal uses three main tools for addressing our historic budget deficit, cuts, revenues, and shifts. I will attempt to outline each proposal and how they use cuts, revenues and shifts to balance the budget. I will also give a brief commentary on my thoughts for each. In order to have a better understanding about what shifts mean, I will attempt to give a quick explanation. A shift is essentially an accounting gimmick that allows for the bottom line of our budget to be impacted by changing when/how we pay for something. For example, let's say you pay all your household bills on the end of the month and you have $2,000 in bills and $2,000 in your checking account. You pay your bills and then you balance your checking account and you have a balance of $0 at the end of the month. Well, if you decide to "shift" when you pay your bills of $2,000 to the first of the month, while still balancing your checkbook at the end of the month you are doing a "shift" like some of the budget plans propose. By doing this you show a balance of +$2,000 at the end of the month. Some of the proposals have what we call a school shift when we pay schools part of their payments not in this fiscal year, but in the beginning of the next fiscal year, which makes our bottom line look better. A shift, however, is one-time money, and does not address the structural deficit that is in our budget. Governor's budget proposal Cuts: The governor proposes a total budget of $32.6 billion for 2010-2011 (remember we budget for two years). This is down from our current two-year budget of $33.9 billion. The total cut in this proposal is $2.3 billion from the forecasted base. Most of the
governor's proposed cuts occur in Health and Human services, state government, higher education, and property tax aids such as local government aid. Revenues: The governor proposes $950 million in new revenues by issuing new bonds. The new bonds under the governor's proposals would be secured by the next 20 years of tobacco revenue payments due to the state. The governor proposes to use the $950 million to pay off our next two years of debt payments. To put this is simpler terms; this is essentially like taking out a new credit card to pay off existing credit card debts. Shifts: The governor proposes to do a $1.2-billion school shift (details of the shift were explained earlier.) Personal Reaction: The biggest concern I have with the
governor's proposal is his plan to borrow money to pay off our current debt on borrowed money. This approach is only penny wise and pound foolish, but it is also only one-time dollars that do nothing to address the structural deficit we have. This is a one-time approach that cannot be used for future budget expenditures. I also have concerns with the shift, but I'll address this in my comments on the House budget. Senate budget proposal Cuts: The Senate proposes to do a 7 percent across the board cut to all state government including education. This approach totals $2.4 billion in cuts from the forecasted base, which is slightly more cuts than the governor proposes. Revenues: The Senate proposes $2 billion in revenues. Specifics for raising this amount are not defined yet, as this is called a target. The target is sent to committee where the details will be worked out. Revenue raisers could include taxes, gambling revenues, fees, or even the governor's proposal. Shifts: The Senate proposed no shifts in their budget. Personal Reaction: While I applaud the absence of shifts in this proposal, I have concerns with the across the board cuts. I think this approach relinquishes the expectation that the legislature should prioritize spending. In my opinion across the board cuts lack the deliberative and judicious approach that the legislature should use when budgeting. I also have reservations about the ability to raise $2 billion in revenues, because these details are to be worked out in the committee process, I will reserve final judgment until I see more specifics. House budget proposal Cuts: The House proposes $1.6 billion in cuts from the forecasted base. These cuts affect different areas of the budget differently. Education, higher education, and early childhood education receive no cuts, but also no increases. Cut percentages range from a 3.5-percent cut to public safety and the courts to an 8 percent cut to state government (like the Legislature and state agency operations). Revenues: The House proposes $1.5 billion in new revenues. These revenues will be detailed during the committee process and can use several approaches to reach this target. Shifts: The House proposes a $1.7 billion education shift. Personal Reaction: As a member of the House, this is the budget I will be working with the most. My biggest concern with this proposal is the use of the education shift. This is yet again one-time money that does not address the structural issues we have with our budget. While shifts are relatively painless and can spare further cuts or need for revenue, this is also a risky approach, especially if the economy does not turn itself around. I would like to see this shift either eliminated or reduced by focusing on structural approaches like cuts. I have also attached an informational flyer about the states property tax rebate program. Because we are in tax season, this is a great time to file for your property tax rebate. This is a program that is under-used and relatively unknown. Please take advantage of this program. This is it for now. In my next update, I will be outlining some of the issues I am personally working on in the legislature, and also reporting on the progress that has been made with fixing issues relating to the Green Acres program. If you have any questions or concerns, please never hesitate to contact me at any time.
Representative Larry Hosch